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1) To help you BUY and SELL great stocks at the right time

2) To help you control your emotions in the process

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The Stock Picking Method


Below are the steps that GreatStockPicks applies to gather great stocks for you before their potential breakouts. We believe that using our service will save you tons of money and time because we help you buy and sell great stocks at the right time but if you choose not to go with our service, then we want to help guide you in choosing the great stocks for yourself.


BUY and SELL Great Stocks at the Right Time


A) The Work Phase: Finding The GREAT STOCKS

STEP 1: Strong earnings/sales in top industry groups

Every stock represents a company. A company with employees, staff and a service or product they are selling. A great company is based on its strength and soundness which can determined by looking at its earnings and sales that it posts each quarter. You should look for the annual earnings in the last 2 years that are up 25% or more. And have the most recent sales and earnings accelerating in the last few quarters. The last quarterly earnings and sales should be up at least 25% or more. Pick stocks whose management has some ownership of the stock of at least 5% to 10%. The return on equity is an indicator of the financial performance of the stock and you want it to be 15% or higher (you can find this in a company's SEC filings, including its 10-Q, 10-K and annual reports).

Just as we can know a person by the friends he or she keeps, similarly, a stock is known by the industry group it belongs to. Stocks tend to move in groups and about 45% of its price movement is connected with the industry group its in. You want a stock breaking out of a sound base, but also you wants its group to be moving higher. This gives it that extra boost. If you have a stock breaking out of a sound base but its industry group is going down, there is a good chance your the stock will follow. Lastly, you want stock in the top 20% of the industry groups out there and number # 1 in its specific group.

STEP 2: with a sound base

Looking for sound bases refers to the technical analysis component of this investment method. Charts give you the price and volume action of a stock on a daily, weekly, or monthly basis. Charts are great because they show you the committed decisions of the investors out there in the marketplace and can reveal future trends and patterns.


There are THREE sound bases to look for:

a.) Flat Base:

You want a minimum of 5 weeks for the formation of type of base. You want the trading range to be 10%-15% from the highest point to the lowest. You don't want huge price fluctuations beyond this range because it can add to the stock's volatility and give tepid breakouts. It should be a tight trading range with decreased volume close to the break out point. An example could be a stock that trades between $30 to $33 over a minimum 5 week period and then shows volume dry up.

b.) Cup and Handle:

You want a minimum of 7 weeks for the formation of this type of base from the left side peak of the cup to the breakout at the handle. There should be about a 2 week formation on the downward side of the cup and a minimum 1 week formation on the upward side of the cup toward the handle. Also there should be spikes in volume that coincide with increased price during the cup formation. This lets us know that the institutions are supporting the stock. You want the volume to generally be increasing as the upward side of the cup is forming. The peak of the right side of the cup should be at the upper half of the cup overall. The right side peak of the cup should be about 10%-15% lower than the left side peak of the cup. During the handle formation, you want the price to drift downward no more than 15% -20% from the peak of the left side of the handle. You want volume dry up during this process. The volume dry up means that the last of the weak shareholders have left and now the stock has room to move up in price without too much hindrance.

c.)Double Bottom Base:

You want a minimum of 7 weeks for the formation from the very left peak of the W to the breakout at the handle. You want the very left peak of the W higher than the middle peak of the W. Additionally, you want the left bottom of the W higher than the right bottom of the W. During the first bottom of the W you want a 20% to 50% decrease in price from the very top left peak with volume dry up. From the first bottom to the middle top of the W, you want to see spikes of volume increase to show that the institutions are stepping in to support the stock. During the second bottom, you want volume dry up in a tight trading range. From the second bottom to the very right peak of the W, you want to see if the 2 V's in this W are close together and steep. During the formation of the handle, you want the price to drift downward in a tight trading range. You want the handle to form in the upper half of the 2 cups or V's. Lastly, you want volume dry up so we know the last of the weak shareholders have left giving the stock room to go up in price.


B) The Waiting Phase: BUYING at the RIGHT TIME

STEP 3: When the price passes the buy point

Every base contains what is a called a buy or pivot point. The buy points are the first peak in the handle in all of the 3 bases. When you add 10 cents to this peak in the handle you then have your buy point. This is the point of least resistance. When the price passes this buy point, there is a great chance that the price will continue to rise and is the point at which you want to buy the stock. Also, you should buy the stock within a 5% range from this buy point, due to the fact that you want some leeway if the stock snaps back on you in price.

STEP 4: on a 50% volume increase surge in an up trending market.

Each stock has a 50 day average daily volume. You get this number by taking the number of shares trading each day averaged over the last 50 days. You want the price to break out past the buy point on a 50% volume increase surge.

For example, when a stock has an average daily volume of 100,000, you want the breakout volume to be around 150,000 or more. Why? Because this is when you know that the big institutions, mutual funds, money managers, etc. have stepped in and are putting their money into the stock. This group constitutes about 80% of the movement in the stock market. You want these people on your side. To increase your chances of success, you want the market (NASDAQ, Dow) to be in an up trending mode. Why? Because whatever happens to the market indexes affects 8 out of 10 stocks out there. If the market indexes are trending upward, more likely your stocks are going up in price, and, conversely, if the market indexes are trending downward, more likely your stocks are going down in price.

This is why this phase may also be called the "humility phase" because we need to let the market speak to us and draw us into or out of stocks in which we in invest in.  



C) The Last Phase: SELLING at the RIGHT TIME

If you do go with our service, we make investing very simple because we do all the work to gather the great stocks and help you buy at the right time.  Once you bought a stock, we guide you day by day with hold or sell signals to lock in your profits. We monitor various aspects of your stock and the market to help you sell at the right time!


Suggested Books to Read

• 24 Essential Lessons for Investment Success - William O'Neil
• One Up on Wall Street - Peter Lynch
• How to Make Money in Stocks - William O'Neil
• The Sophisticated Investor - Burton Cane
• The Battle for Investment Survival - G. Loeb
• Reminiscences of a Stock Broker - E. Lefevre
• My Own Story - B. Baruch
• How to Trade in Stocks - J. Livermore


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